blue and yellow simple human illustrative investing
TRANSCRIPT
INDEX
Overview
Overseas Direct Investment by Indian Party
Criteria For ODI under Automatic route
Financial Commitment
Methods of Funding
Reporting Requirements
Disinvestment by Indian Party
Oversea Direct Investment by Resident Individual
Oversea Direct investment by Registered Trust and Society
Overview
Overseas Direct Investment refers to the investments made in the Joint
Ventures (JV) and Wholly Owned Subsidiaries (WOS) by way of:
– Subscription to the Memorandum of a foreign entity; or
– Purchase of existing shares of foreign entity either by
market purchase or private placement or through stock exchange
Overseas investments in JV or WOS have been recognised as
important avenues for promoting global reach of Indian
entrepreneurs.
To regulate the Overseas Direct Investment, RBI had notified:Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time. A Master Direction titled ‘Master Direction on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) abroad’ has been issued.
NOTE: Investments / financial commitments in Pakistan by
Indian Parties are permissible under the approval route.
Investments / financial commitments in Nepal are
permitted only in Indian Rupees. Investments / financial
commitments in Bhutan are permitted in Indian Rupees as
well as in freely convertible currencies.
An Indian Party is eligible to make Overseas Direct Investment into a Joint Venture or Wholly Owned Subsidiary"Indian Party" means
·a company incorporated in India or ·a body created under an Act of Parliament or ·a partnership firm registered under the Indian Partnership Act, 1932, or ·a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership
Act, 2008 (6 of 2009), making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be notified by the Reserve Bank
"Joint Venture (JV)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian Party makes a direct investment.
"Wholly Owned Subsidiary (WOS)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country, whose entire capital is held by the Indian Party
Overseas Direct Investment by Indian Party
An Indian Party has been permitted to make investment / undertake financialcommitment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS),as per the ceiling prescribed by the Reserve Bank from time to time
The total financial commitment* (“FC”) of Indian Party in overseas JV/ WOS shallnot exceed 400% of its net worth (as per the last audited Balance Sheet)
Note: FC made out of balances held in the EEFC account of the Indian party or outof funds raised through ADRs/GDRs will not be taken into consideration for thepurpose of the aforesaid calculation. Hence, Maximum Limit would be:
400% OF Net Worth
FC made out of Balance in EEFC A/C
FC made out of ADR/GDR proceeds
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Financial Commitment: Financial Commitment comprises of:-• 100% of the amount of equity shares and/ or Compulsorily Convertible
Preference Shares (CCPS);• 100% of the amount of other preference shares;• 100% of the amount of loan• Guarantee
Note: Indian Party can extend Loan and guarantee by way of Automatic Route to an overseas entity only if there is already existing
equity participation by way of direct investment in such overseas entity. If there is no equity holding of Indian Party, then Loan and
Guarantee can be granted by way of RBI Approval
100% of Corporate Guarantee
100% of Bank Guarantee 50% of Performance Guarantee
i. Drawal of foreign exchange from an AD bank in India;
ii.Capitalisation of exports;
iii.Swap of shares (valuation as mentioned in para B.1 (e) above);
iv.Proceeds of External Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds
(FCCBs);
v.in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993,
and the guidelines issued thereunder from time to time by the Government of India;
vi.Balances held in EEFC account of the Indian Party and
vii.Proceeds of foreign currency funds raised through ADR / GDR issues
In respect of (vi) and (vii) above, the limit of financial commitment vis-à-vis the net worth will not
apply.
For any capitalization of exports, along with Form ODI, a custom certified copy of the invoice
raised towards the export has to be submitted to RBI.
Method of Funding
Reporting Requirements
1. An Indian Party shall submit Part I of the Form ODI within 30 days of Investment with designated Branch of Authorized Dealer Bank along with the following annexures:– Certified Copy of Board Resolution approving the Investment Outside India– Remittances Proofs i.e. Bank Documents of payments– Statutory Auditor’s Certificate– Form A2 (Form A2 is submitted to Banks at the time of remittance Outside India)– Valuation report for the value of shares2. After receiving the aforesaid documents, AD Bank shall verify all the Documents and if found in order, forwards the same to RBI.3. RBI then allots an Unique Identification Number (UIN) for that particular JV/WOS.UIN No. is allotted by RBI to Indian Party in respect of each JV/WOS outside India.
In respect of Initial Investment:
In respect of Subsequent Investment:
1.Report to the Authorized Dealer Bank by Submitting the Part I of the Form ODI within 30 days of Investment along with all
documents as prescribed above.
2.An Indian Party shall quote the UIN No. as allotted by RBI in Part I of form ODI.
Contents of Part I of the form ODI:- All ODI forms are submitted to the AD Bank in physical. Part I of form is divided in
sections which includes the following:
Section A – Details of the Indian Party (IP)/Resident Individual (RI)
Section B – Capital Structure and other details of JV! WOS! Step Down Subsidiary
Section C – Details of Transaction/Remittance/Financial Commitment of IP/RI
Section D – Declaration by the IP/RI
Section E – Certificate by the statutory auditors of the IP/ self certification by RI
Post Investment Obligations of Indian Party
1. Receive Share Certificates/Other Documentary Evidence: An Indian Party shall Receive share certificates/ any other
documentary evidence of investment in the overseas JV / WOS and submit the same to the designated AD within 6 months.
2. Repatriation of Dues: Repatriate to India all dues receivable from the overseas JV / WOS, like dividend, royalty, technical
fees etc within 60 days of its falling due, or such further period as the Reserve Bank may permit.
3. Submission of Annual Performance Report (APR) : Submission of APR APR in Part II of Form ODI in respect of each
JV or WOS outside India set up or acquired by the Indian party by 31 December every year.
4. Repatriation of Sale Proceeds in case of Disinvestment: On disinvestment, repatriate the sale proceeds immediately or
not later than 90 days from the date of sale of the shares /securities.
5. Submission of Return on Foreign Liabilities and Assets: File Foreign Liabilities and Assets (FLA) return every year by
15 July.
Disinvestment by Indian Party
Disinvestment by the Indian party from its JV / WOS
abroad may be by way of:
transfer / sale of equity shares
liquidation of the JV / WOS abroad.
merger / amalgamation of the JV / WOS abroad.
Modes of Disinvestment: An Indian Party may disinvest from JV/WOS
either
1. without write off or
2. with write off
subject to the compliance of some conditions.
1. Disinvestment by Indian Party without write off:
Indian Party may disinvest without write off under the automatic route subject to the following:
the sale is effected through a stock exchange where the shares of the overseas JV/ WOS are
listed;
if the shares are not listed on the stock exchange and the shares are disinvested by a private
arrangement, the share price is not less than the value certified by a Chartered Accountant /
Certified Public Accountant as the fair value of the shares based on the latest audited financial
statements of the JV / WOS;
the Indian Party does not have any outstanding dues by way of dividend, technical know-how
fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the
JV or WOS;
the overseas concern has been in operation for at least one full year and the Annual
Performance Report together with the audited accounts for that year has been submitted to the
Reserve Bank;
the Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory
authority in India
Other terms and conditions prescribed under ODI Regulations
2. Disinvestment by Indian Party with write off:
Indian Party may disinvest with write off under the automatic route subject to the
following:
where the JV / WOS is listed in the overseas stock exchange;
where the Indian Party is listed on a stock exchange in India and has a net worth
of not less than Rs.100 crore;
where the Indian Party is an unlisted company and the investment in the overseas
JV / WOS does not exceed USD 10 million; and
where the Indian Party is a listed company with net worth of less than 100 crore
but investment in an overseas JV/WOS does not exceed USD 10 million.
All other conditions as applicable in Disinvestment without write off shall mutatis
mutandis apply for Disinvestment with write off.
Writing off Capital or Other Receivables (Loan, Guarantee
Amount, Royalty):
Indian Party may write off Capital or Other Receivables within permissible limit which are as follows:
> Listed Indian companies are permitted to write off capital and other receivables up to 25% of the
equity investment in the JV /WOS under the Automatic Route; and
Unlisted companies are permitted to write off capital and other receivables up to 25% of the
equity investment in the JV /WOS with prior approval of the Reserve Bank
Compliances followed by the Indian Party:
Reporting of Part III of Form ODI to AD Bank within 30 days of divestment.
On disinvestment, repatriate the sale proceeds immediately or not later than 90 days from the date
of sale of the shares /securities.
Two Routes for Outbound Investments by Resident Individuals – LRS (Liberalised
Remittance Scheme) and ODI
Investment in overseas JV / WOS only by way of equity / compulsorily convertible
preference shares
JV / WOS to be engaged in bonafide business activities except real estate / banking /
financial services
Limit of investment in JV / WOS as per LRS limit (currently USD 250,000 per person
per annum).
Investment made from EEFC / RFC account also included in prescribed LRS limit
JV / WOS to be operating entity only – No step down subsidiary to be acquired or set up
by JV / WOS
Valuation /Reporting and Post investment obligations same as applicable to ODI by
Indian Companies
Write off not permitted in cases of disinvestments
Overseas Direct Investments by
Resident Individuals
Overseas Direct Investment by
Registered Trust and Societies
Registered Trusts and Societies engaged in
manufacturing, educational and hospital sector are
allowed to make investment in the same sector(s) in a
JV/WOS outside India, with the prior approval of
the Reserve Bank.
(i) The Trust should be registered under the Indian Trust
Act, 1882;
(ii) The Trust deed permits the proposed investment
overseas;
(iii) The proposed investment should be approved by the
trustees;
(iv) The AD Category – I bank is satisfied that the Trust is
KYC (Know Your Customer) compliant and is engaged in
a bonafide activity;
(v) The Trust has been in existence at least for a period of
three years;
(vi) The Trust has not come under the adverse notice of
any Regulatory/ Enforcement agency like the Directorate
of Enforcement, Central Bureau of Investigation (CBI),
etc.
Eligibility Criteria for Trust
Eligibility Criteria for Society
(i) The Society should be registered under the Societies Registration Act, 1860.
(ii) The Memorandum of Association and rules and regulations permit the Society to make
the proposed investment which should also be approved by the governing body/council or
a managing/executive committee.
(iii) The AD Category – I bank is satisfied that the Society is KYC (Know Your
Customer) compliant and is engaged in a bonafide activity;
(iv) The Society has been in existence at least for a period of three years; (v) The Society
has not come under the adverse notice of any Regulatory/Enforcement agency like the
Directorate of Enforcement, CBI etc
Valuation /Reporting and Post investment obligations are same as applicable to ODI by
Indian Companies
